Md. Blues' cash supply falls sharply Insurer says it can still pay bills

November 14, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

Blue Cross and Blue Shield of Maryland, the state's largest health insurer, saw its cash on hand drop in half this month, to a five-year low, representing about 15 days' worth of claims and expenses.

The drop in liquidity comes as the insurer faces a cyclical business downturn and means it has a smaller cash cushion to withstand an unanticipated surge in health claims, a loss of business or a drop in its prices that could result from stiff competition.

Company officials said a big reason for the fall in the insurer's cash supply was that it had to increase by millions the advance payments it makes to hospitals so it could continue to qualify for a discount in hospital charges.

In addition, it had to repay nearly $8 million when a bank canceled a $10 million line of credit to one of its subsidiaries.

Vice President and corporate actuary James R. Swenson said the company's ability to pay its bills is not affected. "We have $70 million in securities," he said, referring to a component of assets that could be converted to cash to pay bills. He said he expects liquidity to improve by the end of the year, and the company has said it expects record profits this year.

State regulators have also put the company on notice that it will be required to follow industrywide accounting rules -- a move that will force it to discount millions of dollars worth of its total assets this year. The state currently is conducting a financial examination of the Maryland Blues.

In June, the Blues, which cover 1.4 million Marylanders, had enough cash on hand to pay a month's worth of bills and expenses, or about $115 million, company officials said. The Chicago-based Blue Cross and Blue Shield Association, the umbrella group of the 73 independent Blues plans, apparently recommends member plans have three months' worth of cash, according to an October report by consultants Booz Allen & Hamilton Inc. to the Maryland Blues.

Maryland is one of about 15 plans on the association's monitoring list or "watch-list" for below-normal financial or service levels. The national group does not make public the measures it uses to evaluate the finances or service of member plans.

The national group, which controls the Blue Cross trademark, has stepped up its contacts with the Maryland plan this year, according to Clay Mickel, a spokesman for the national association.

He said monitoring includes requiring the member plan to make monthly rather than quarterly reports as well as less formal ex

changes or "more of a hands-on approach, and we are in that mode with Maryland right now."

Last month Blue Cross was forced to pay off $7.8 million on its line of credit with NationsBank Corp., a move that by itself caused a 7 percent drop in liquidity. The loan was guaranteed by Blue Cross on behalf of a subsidiary, HealthLine, which used it to extend credit to medical providers. About half the loans defaulted.

Blues spokeswoman Catherine B. Campbell said the loan was called because of the bank's concern about overexposure to Blues plans nationally and because of its concern with HealthLine. Blue Cross continues to have access to $15 million in unused credit at other banks, she said.

In another change this year, the insurer agreed to advance an extra $31 million to hospitals, for a total of $85 million. That is a 54 percent increase over last year. The new level was negotiated after hospitals complained that the company was not advancing enough money to cover its subscribers' medical bills.

Rather than wait for claims to be paid, hospitals get advances in exchange for offering insurers a 2 percent discount.

"What happened was, we were concerned that cash advances were not accurately reflecting the bills due," Cal Pierson, president of the Maryland Hospital Association, said. "We worked with the Blues and they developed a new methodology to more accurately predict bills."

Mr. Swenson said hospital advances in Maryland "are unique in comparison to other states. No other Blues plan has the level of advance to providers" that the Maryland Blues has, he said. If the advance this year were returned to cash flow, he said, the Blues would have about three-quarters of a month's cash.

One reason for the large advances stems from the fact that the Blues plan here is one of the slowest to service clients and pay bills nationally.

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